Stan’s Option Challenge: Question #6

We all know that trading options is exciting, highly competitive, and can be very profitable. The key to long term and consistent profits in option trading is options education. The McMillan Mentoring Program, which is run by former Market Maker, white badge AMEX Floor Official, professional trader, and longtime MENSA member Stan Freifeld, can take your trading to the next level. To see where you stand, take Stan’s Options Challenge by answering his question on the first Monday of each month.  

Stan’s Options Challenge: Question #6

You are considering putting on 10 July 50/55 Call backspreads on XYZ stock by selling 10 July 50 Calls and buying 20 July 55 Calls. XYZ does not pay a dividend. Which of the following positions is not synthetically equivalent to the backspread (i.e., which one does not have the same dollar amount of profit potential and risk):

Note: - means short, and + means long

A) -10 July 50 Puts, +10 July 55 Calls, + 10 July 55 Puts
B)  sell 1,000 shares, -10 July 50 Puts, +20 July 55 Calls
C)  buy 2,000 shares, -10 July 50 Calls, +20 July 55 Puts
D) +10 July 50 Calls, -20 July 50 Puts, +20 July 55 Puts
E) -10 July 50 Calls, -10 July 50 Puts, +10 July 55 Puts

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